Bitcoin’s stock-to-price ratio echoes in early 2019 – CoinDesk

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One of the most used charts to predict future massive bitcoin price gains shows the biggest divergence since January 2019.

The stock-to-flow bitcoin model currently suggests that the price of bitcoin should be around $ 77,900. But on Monday, the cryptocurrency was trading at $ 33,668, well below the record price of $ 64,829 reached in April.

Crypto analyst PlanB, who has been documenting its stock-flow model since March 2019, tweeted that BTC / USD is now furthest from estimated value for more than two years.

He said the next six months would “make or destroy” the stock-flow model.

The stock-to-flow model is generally applied to natural resources like gold or silver. Commodities are often referred to as store of value resources which, in theory, should retain their value over the long term due to their scarcity and low throughput.

The idea is that the low supply makes the metals more like “hard silver” as opposed to the dollar. This is a particularly harsh juxtaposition as the Federal Reserve has printed over $ 4 trillion in fees since the coronavirus pandemic struck in March 2020; it is the same amount that the American central bank had already created since its creation at the beginning of the last century.

Bitcoin, sometimes presented by supporters as digital gold, is treated as if it is a scarce commodity for the purposes of the model. Bitcoin is expensive to produce and considered rare, as its maximum supply is capped at 21 million coins.

Cryptocurrency is also experiencing bitcoin halves where the number of bitcoins entering the system with each new chunk of data every 10 minutes or so is halved on average. These halves occur approximately every four years.

Bitcoin has a limited supply, which is great and well known, said Charles Morris, founder of ByteTree Asset Management. Since supply is cemented, price can only be determined by demand.

In the past, the bitcoin stock-to-flow model has been used to forecast the future development of BTC prices. Pantera Capital, a cryptocurrency hedge fund, predicted in April 2020 that bitcoin could reach $ 115,000 by August of this year, using this model.

PlanB wrote in a blog post in April 2020 that the price of bitcoin could reach $ 288,000 by 2024, citing the stock-to-flow model.

According to the model projections, the price of bitcoin is expected to experience a significant increase over time due to its continuously reduced stock-to-flow ratio, Binance Academy said in a blog post.

It should be noted that the model relies heavily on the assumption that cryptocurrency scarcity should generate value, which may not always be the case. This is especially true due to the notoriously volatile short-term fluctuations in the price of bitcoin.

The stock-flow model was created following two halving events, Morris said. I agree, with some caution, that halving can increase the price by about 2 times, as the selling pressure of miners halves, but the idea that the future path of prices is assured by multiples at- beyond is ridiculous.

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